Saturday, August 19, 2006
Martin Armstrong has spent almost the entire 21st century in jail, having been sent there in January 2000 because he was found in civil contempt for refusing to turn over assets in an SEC securities fraud action. Armstrong was a money manager who founded Princeton Economics International, and he was accused in parallel criminal and civil cases of defrauding Japanese investors of over $700 million. Despite repeated attempts to get out of jail on the ground that the civil contempt was ineffective, U.S. District Judge Richard Owen -- backed by the Second Circuit -- refused to let Armstrong leave the Metropolitan Correctional Center in New York for over six years, no doubt a record for the longest civil contempt in federal court history. Now, Armstrong has finally entered a guilty plea to a charge of conspiracy to commit securities and wire fraud, and he will be sentenced in January 2007 by U.S. District Judge John Keenan, who presided over the criminal case that was set to go to trial in October. A Bloomberg story (here) discusses the plea agreement.
Even after the guilty plea, it remains an open question whether Armstrong will be let out of jail on the civil contempt, and whether the court will take into consideration his 6+ years in jail. On the latter issue, federal law permits the imposition of a civil contempt that interrupts a criminal sentence, and there is no requirement that the time spent in jail on the civil contempt be counted toward the criminal punishment, although Judge Keenan is free to do so in setting the sentence. The reason why the civil contempt does not count lies in the difference between a civil contempt, which is viewed as coercive, and a criminal sentence, which is punitive.
The person held in civil contempt "holds the keys to the jail cell" according to the old adage, which means the person can "purge" the contempt by complying with the court's directive. Most cases in this area involve individuals who have received immunity but continue to refuse to testify, and they can get out of the civil contempt simply by testifying. One of the seminal decisions is United States v. Liddy, 510 F.2d 669 (19774), involving Watergate burglar G. Gordon Liddy -- how's that for a blast from the past -- who refused to testify before the Watergate grand jury despite an immunity grant. In rejecting his argument that the civil contempt could not interrupt his service of the criminal sentence, the D.C. Circuit stated:
The coercive impact of confinement for civil contempt results from the fact that the contemnor 'carries the key to the jailhouse door in his pocket,' that is, he can procure his release at any time by agreeing to comply with the court order whose violation is the basis of his contempt. Had the District Court ordered that Liddy's contempt confinement be concurrent with his sentence for Watergate crimes, Liddy would have no incentive to comply with the District Court's order since his doing so would not reduce his total period of confinement. Therefore, the District Court was manifestly justified when it stated: "To give meaning and coercive impact to the Court's contempt powers in the interest of protecting the Court's integrity, the Court here finds it necessary to hold in abeyance the execution of Mr. Liddy's sentence under the indictment pending his confinement for contempt."
Armstrong faces a maximum sentence of five years on the conspiracy charge, and under the federal Sentencing Guidelines if the loss is even 10% of what the government alleges he will be in a sentencing range that will easily take him to the full five years. Whether he gets the benefit of having spent six years in jail already poses an interesting question because he has not, to this point, agreed to cooperate in the SEC enforcement action that triggered the civil contempt. He has, however, shown a resolve that likely would make G. Gordon Liddy proud. (ph)